The Real Deal New York

Behind the record deal for 666 Fifth Avenue

How the $1.8 billion buy of 666 Fifth Ave. went down
By Adam Piore | October 22, 2007 04:34PM

250px-666fifth-frontIt’s a testament to the state of the commercial market that Jared Kushner made his first call about buying the gleaming skyscraper at 666 Fifth Avenue, which would set a record for the priciest single building purchase in U.S. history, before it was even put up for sale.

Clearly, when it comes to landing premium New York City real estate, you can’t be too early or too aggressive.

That’s something the 26-year-old scion of New Jersey’s most prominent real estate family learned firsthand by failing to win some of the other blockbuster deals of 2006.

The Kushners wanted 1211 Avenue of the Americas. But they lost out to Beacon Capital Partners, which put up $1.5 billion for the property, then the second-largest amount in history. The Kushners also bid on Stuyvesant Town and Peter Cooper Village, the 80-acre, 11,232-apartment prize that went to Tishman Speyer for another record, $5.4 billion, the most ever paid for a multifamily complex.

Though the Kushners have owned the Puck Building on Lafayette Street since the 1990s, their decision last year to try to acquire a new Manhattan trophy property promised to take them to a whole different level. They knew it was not going to be easy.

When someone mentioned to Jared Kushner that 666 might be up for sale, he says he didn’t hesitate. He knew others would go after the 41-story, 1.5-million-square-foot building, which towers over Fifth Avenue between 52nd and 53rd streets. This time, he didn’t want to give them a chance.

Kushner put in a call to another young real estate mogul — Rob Speyer, 37 — and asked if what he’d heard was true.

“We’re not sure if we’re selling,” Kushner remembers Speyer telling him. “But if it is true, I promise we’ll let you know.”

A few weeks later, Speyer called back to say: “I gave you my word I would tell you if we’d sell. Right now, we’re considering it, and people are putting in crazy bids on the building.”

So began yet another frenzied fight for a prime piece of property. The Kushners would emerge from this battle with their name on a $1.8 billion record deal — beating out a handful of other unnamed players also gunning to preempt a full-scale marketing process.

For Kushner, it was one final high-profile triumph to cap a dizzying year in the limelight. In just months, he went from near total obscurity as a young law and business school student at NYU to an object of voracious media gossip and fascination after he purchased the pink-sheeted, money-losing New York Observer for $10 million in July. (Not all of the attention has been welcome — the popular gossip blog Gawker has kept up a steady stream of snarky chatter.)

There were, of course, other personalities involved in this record sale. Kushner’s father Charles, the publicity-shy New Jersey real estate baron and Democratic ber-donor, played a strong role in the deal. But he has been staying behind the scenes and having his son speak for the company since August, when he was released from prison.

The elder Kushner served time for tax and campaign finance violations, as well as for intimidating a federal witness, his sister.

The Kushners began laying the groundwork for the deal in February 2006 by working with Scott Latham, executive director of Cushman & Wakefield’s Capital Markets Group, and his fellow brokers. Latham and his group helped the Kushners refine their goals for New York City and educated them about the market.

“They began to talk to us about investing capital in New York City. We spent a good amount of time talking about yields and investment strategy,” Latham says.

Latham has an interesting story of his own. A graduate of the Rhode Island School of Design, he lived the life of a starving artist in the early 1980s, exhibiting paintings alongside Keith Haring and Jean-Michel Basquiat, before discovering commercial real estate and rising to become one of Manhattan’s top — and top-paid — brokers.

Then there is that other rising real estate titan, Rob Speyer, whom the New York Times described in December as a “thin, wiry-haired man with a secret passion for professional wrestling.” The Times called the Stuyvesant deal a “very public introduction for Rob Speyer.”

If that’s the case, 666 Fifth Avenue was young Jared Kushner’s debut — at least in real estate circles.

What stands out for all those involved was the speed of the transaction. The majority of the action took place in less than a week. Afterwards, teams of lawyers, accountants and other green eyeshade-wearing specialists worked through the holidays to get it done. Part of that push came from Kushner himself, whose decisiveness showed that despite his age, he is a man who knows what he wants.

“In New York, you have to act quickly, or else you get left in the dust,” Kushner says. “We were just blown away by it, and we really wanted to buy it.”

Despite their familiarity, Latham wasn’t exactly welcoming that fall day when Kushner called him to ask for 666 Fifth Avenue’s “book,” the glossy brochure with key stats and information about the skyscraper.

Before he would even send over a confidentiality agreement, Kushner remembers Latham speaking bluntly.

“This is going to go for a very big price,” Kushner recalls Latham saying. “And if you are not prepared to step up to the plate and move quickly and look to pay a big number, I don’t want to waste your time or our time.”

Chalk it up to experience. Latham came up in the markets of the 1980s and 1990s, when a broker’s primary job was to evaluate the financial position of potential suitors and weed out what Latham likes to call “the tire kickers.”

Give the wrong buyer a chance, and they might stall and try to tie up a deal indefinitely, all the while scrambling to raise the capital to pull it off. That’s changed in recent years, with sellers now requiring huge deposits even before due diligence begins, thus ensuring that only the well-capitalized will take the risk.

But top brokers retain the role of gatekeepers in today’s market. And the goal remains to move “very, very quickly,” Latham says.

“That’s the New York City process, particularly because the owners are trying to take advantage of the market, which changes over time,” Latham says. With so much capital floating around the market and so many potential buyers, nowadays “as the seller you have the luxury of pushing people to move faster than they would want to,” he says.

Perhaps Latham had a bit of proprietary interest in the property. Back in 2000, Sumitomo Realty & Development Company hired Cushman & Wakefield to sell 666 Fifth Avenue, which it did to a partnership of Tishman Speyer and TMW, a German entity later purchased by Prudential. Back then it went for a mere $518 million.

But in September 2006, Cushman began talking with Tishman Speyer about selling the asset again. It wasn’t until mid-fall that the process started to pick up steam.

By then, the Kushners were fed up with placing losing bids and had their own reasons to move fast — they hoped to preempt a full-blown marketing process, to focus the seller’s attention on their company, and walk away with the building.

Latham “was very guarded,” Kushner says. “I told him I was very serious about it, that we wanted to make a play for it.”

If Latham still had any doubts about the Kushners’ intentions, they faded with each step of the process. When Latham sent Kushner the confidentiality agreement, he signed it and sent it back within the hour. The Kushners spent one night with a copy of the brochure and arranged to check out the building the next day.

They came with a group of about 20 people. And both Latham and Arthur J. Mirante II, president of global client development for Cushman & Wakefield, watched the group’s body language as the Kushner entourage stood in the polished lobby, gazing at the Isamu Noguchi floor-to-ceiling waterfall, taking in the rooftop views of Fifth Avenue and checking out the miles of office space.

“When love presents itself at first sight, it’s pretty apparent,” Latham says. “You can see the chemistry working, you can tell it’s happening — just like when someone spots a woman across the bar.”

Mirante remembers the tour group breaking off into clusters of three or four, chattering excitedly.

There would be three tours that week. By the third tour, the Kushners were asking for pricing guidance.

“Virtually every time we took the tour,” says Mirante, “there were always educated questions” that indicated the Kushners’ seriousness about the property. “‘When does this tenant’s lease expire?’ Or, ‘Boy, that was smart to move that entrance from Fifth Avenue to the side street’. Or, ‘Boy, does this installation look good.'”

“The building shows very, very well, it’s got some unbelievable space; the views from up top are breathtaking,” says Kushner. “The building just has an unbelievable elegance to it, which is apparent from the Noguchi water fountain, which provides great sound in the lobby. It was just a first-class building, with a first-class feel.”

“We were obviously enamored with the building and we asked Scott, ‘what would it take to preempt the process?'”

At that point, even though bidding had not officially begun, Cushman & Wakefield was already in active discussions with multiple buyers, Latham says.

“It was a difficult conversation because if you shoot too high you might scare somebody away,” he says. “But if you shoot too low, they’ll give you a number and it’s your fault it’s too low, so it’s more about inferences.”

Though Latham did not throw out a specific number, he referenced the prices and qualities of some other recent deals, pointing out their similarities and emphasizing their eye-popping price tags: 1211 Avenue of the Americas, which sold for $1.5 billion, and 350 Park Avenue, which sold for $542 million.

The next day, Kushner sent over a one-page offer sheet, and Latham recognized immediately it would set a new world record — $1.8 billion.

“We thought it was a number that would get the seller’s attention,” Kushner says.

Like in a growing number of other deals in the red-hot market, the Kushners factored in future profits rather than current leasing rates and took a bit of a gamble.

“There was a week before the contract was signed where their team was going nonstop trying to project what kind of revenue they could generate,” Mirante says. “Because of all the leases expiring at 666, they plan to capitalize on what they believe will be a rent spike in the market and will be able to sign much, much higher leases than right now.”

Then there’s another option. The New York Post reported in December that the Kushners could flip the retail portion of the building. Offers were pouring in for the ground floor space, which includes the NBA Store, Brooks Brothers and Hickey Freeman, for as much as $640 million (see Sales prices quadruple for retail space).

A day and a half after receiving the offer, Tishman ordered their lawyers “to draw up a standard contract” and send it over to the Kushners. Tishman asked for a $100 million nonrefundable deposit.

“The next big step was, ‘let’s get in the room with the lawyers, and we’re not going to leave until we’re done,'” Mirante says. “They went to the lawyers’ office at 6 p.m. at night, worked around the clock, took a break at 11 a.m., returned at 3 or 4 p.m., went through a second night, and signed the deal at 8 a.m.”

After they signed the deal, Kushner recalls, “Rob [Speyer] said, ‘congratulations, you just beat our record for the largest single asset buy [200 Park Avenue].’ And I said, ‘oh man.’ And then I showed him my shoes, and I had holes in the bottoms of my shoes. I got them resoled after the deal. [Now] they’re comfortable.”

The record may not stand for long. Harry Macklowe’s purchase of the 1.76-million-square-foot office tower at 1301 Avenue of the Americas may close for more than $1.8 billion. Macklowe went into contract to buy the building, and seven others, as owner Equity Office Properties was being acquired by the Blackstone Group in January. One of the other properties, the 1.7-million-square-foot Worldwide Plaza at 825 Eighth Avenue, closed for a near-record $1.73 billion.

“I love New York — it’s the greatest city in the world,” Kushner says. “In this particular transaction, we bought really the center of the world, Fifth Avenue and 52nd Street. It doesn’t get any better than that.”